State finds big gaps in utility funds

Discrepancies are in the hundreds of millions after review of special accounts

Clanon said the commission is not waiting for next month’s deadline to begin correcting the problems. He said the commission has streamlined and clarified the management structure over its budget.

“I am responsible for all of it and there is a clear line between me and the people doing the budget work now so that we no longer have any concern about people not knowing who is doing what,” he said.

The commission’s administration of special funds has grown to 14 from four in 2001-02. Management did not adequately respond to the challenges posed by the increased workload, according to the audit. The commission’s budget office consists of one employee responsible for all 14 funds. That led to tasks being farmed out to part-time workers who received limited to no guidance or oversight.

State finance officials found that over the past seven budget cycles, the commission’s forecasting models produced results that differed significantly from actual revenues, reimbursements and expenses. Finance officials observed that supervisory reviews were not always performed, increasing the risk of errors. They found an $81 million typographical error in one fund’s forecast. It was corrected.

The audit also found that a lack of proper records-keeping caused the commission to misrepresent the financial condition of its funds. Unrecorded transactions ranged from about $40,000 to $275 million.

Tiffany Roberts, senior analyst for energy and climate change at the Legislative Analyst’s Office, said the problems with the commission’s own budgeting and accounting practices raise concerns about its ability to effectively audit the books and records of the utilities it regulates. The PUC must every three years conduct audits of accounts that hold billions of dollars and were established by major power companies such as San Diego Gas & Electric and Pacific Gas & Electric to pay for activities mandated by the PUC. The commission is required to share the audits with the Board of Equalization.

At the hearing, Assemblyman Steven Bradford, D-Gardena, asked Clanon whether the commission was fully complying with the law.

“No,” Clanon said.

State records dating back to 1977 show that the Board of Equalization has not received an audit from the commission.

“We’ve been in contact with the Board of Equalization,” Clanon said. “They don’t find the kinds of audits we do useful for their work. They do their own audits for their own work.”

Clanon maintained that no ratepayers were harmed and no program services were affected by the incorrect forecasts. He said he regretted that Brown and the Legislature were given an inaccurate picture of what the expenditures were likely to be.

Bloom and some colleagues disagree. They argue ratepayers may have been harmed if past rate increases were the result of mismanagement. Clanon has given some ground on that.

“The problems the budget audit discovered in the PUC’s processes had to do with the way that we forecast the expenditures in these programs,” he said. “And I do take your point that mistakes there can mean that increases that could have been rolled out over multiple years might have to be rolled out more quickly.

“So I do take that point, and to the extent that that’s a ratepayer harm, I think you’re right.”

The budget subcommittee has called for a full fiscal audit of the commission. A copy of its corrective plan is due to the subcommittee April 10 with another hearing planned for April 24.